March 21, 1997

U.S. Expands Search of Columbia/HCA in Texas

By KURT EICHENWALD

ederal investigators widened their search of medical offices
around El Paso, Texas, on Thursday, seizing documents from doctors
affiliated with the local hospitals that are operated by
Columbia/HCA Healthcare Corp., people familiar with the situation
said.

The action came in the second day of the government's search,
which was now said to be completed. On Wednesday, investigators
from the FBI, the Internal Revenue Service and the Department of
Health and Human Services served search warrants on a series of
Columbia facilities in El Paso, as well as on dozens of doctors.

In addition, people with knowledge of the situation said that
the inquiry into Columbia, the United States' largest health-care
company, involved a fourth agency, the Defense Department's
Criminal Investigation Service.

Investigators sought a broad range of documents, including
financial, billing and medical records, people who have seen the
search warrants said. Moreover, the warrants were served on
Columbia's two local hospitals as well as on a number of related
sites, including a wound-care center, a behavioral life center and
other medical operations.

A copy of a search warrant shows that the government's search
was broad-based, involving Columbia's El Paso medical network; El
Paso Healthcare System Ltd., a partnership that owns the network;
the Sun Country Medical Equipment Center, an affiliate, and certain
El Paso doctors.

While the government has not disclosed the nature of the
investigation, the agencies participating in the inquiry indicate
that it may involve practices concerning such government
health-care payment programs as Medicare, Medicaid and Champus, an
insurance program for military personnel.

Investors reacted swiftly to the news of the investigations,
disclosed by Columbia after the close of trading Wednesday. The
opening of trade in Columbia shares was delayed almost half an hour
Thursday, as sell orders outnumbered buys. Once trading began,
shares fell as much as 5 percent; they closed Thursday at $41.25,
down $1.125.

In a statement Wednesday, Columbia said that it believed that
the investigation, with which the company is cooperating, was
limited to El Paso. A spokesman at the company's headquarters in
Nashville, Tenn., declined to comment further Thursday.

But law-enforcement officials, speaking on condition of
anonymity, said that investigations of Columbia were also
proceeding in other cities. It was not immediately clear if those
investigations were related to the El Paso inquiry, or how far
along they were.

In El Paso, dozens of doctors have been served with search
warrants by federal agents, people with knowledge of the situation
said. The warrants were largely served on sites and offices within
one mile of each other -- an area jokingly referred to by local
residents as "pill hill."

During the last two days, government agents have driven a fleet
of large rental trucks from Ryder to the sites. Those agents, often
using dollies, have then loaded the trucks with boxes of seized
documents.

In some investigations, a demand for document production can be
a genteel matter. But the government is taking a rather hard-edged
approach in this inquiry. People with knowledge of the situation
said that in some offices computer operators were told to back away
from their machines, turn over their passwords to the agents and
leave.

In one instance, federal agents wanted access to a locked desk
of a doctor who was not in the office. The doctor agreed by
telephone to hurry over with a key, but was told that if it took
more than 10 minutes the agents would break the desk open.

Legal experts also said that the use of search warrants, as
opposed to criminal subpoenas, was a sign of the seriousness of the
inquiry. Affidavits in support of the warrants have been filed
under seal in local federal court.

"With subpoenas they don't have to show probable cause" that a
crime occurred, said Pamela Bucy, a former prosecutor who is now a
professor at the University of Alabama School of Law. "For a
search warrant, you do have to get a judge to say that there is
probable evidence of a crime at a certain location. That's a much
higher burden."

A number of doctors served with search warrants have broad
financial relationships with Columbia, though there is no immediate
indication that those ties have any direct relationship to the
investigation. Many doctors served with warrants are investors in
the local Columbia network and refer patients to it.

Internal company records also show that a number of the doctors
served with warrants have worked for Columbia as consultants, often
being paid thousands of dollars each month by the hospitals.

Al Cruz, a spokesman for the FBI, said that the agency would be
reviewing the records it seized from locations "directly or
indirectly connected to the Columbia health-care system" in the
coming weeks.

Among the thousands of documents the government seized was one
that appears to demonstrate an aggressive approach by the company
toward gaining the most money possible from Medicare.

The document, from Columbia Medical Center West, says that in
deciding to build a new rehabilitation business in El Paso,
Columbia planned to break the business into two parts: one for
patients with commercial insurance and one for patients with
Medicare, which bases payments for outpatient treatment in part on
cost.

The hospital decided to build its Medicare business on the
premises of the Columbia Behavioral Center, the document says,
because that would "allow some cost shifting from the behavioral
unit to" the center, where compensation is based on cost.